All but three of the 74 companies have informed the U.S. Environmental Protection Agency that they will bring the state-issued permits into compliance with federal law within the next year.

The response suggests the heated fight over Texas’ so-called flexible permits has cooled, Al Armendariz, the EPA’s administrator based in Dallas told the Houston Chronicle.

While industry recognizes the handwriting on the wall, Texas Gov. Rick Perry continues to fight the EPA, and the Texas Commission on Environmental Quality (TCEQ) is openly defying EPA’s permitting authority.

Recently, Texas filed suit twice in federal court to block the EPA’s disapproval of flex permits, asserting that there is no legal or technical justification for the federal agency’s action—only to have their claims rebuffed both times.

The Fifth Circuit Court of Appeals on Friday turned down the state’s motion to prevent the federal takeover of TCEQ permitting for greenhouse gases, and a Washington, D.C., appellate court denied the state’s request for a stay of the new EPA rules.

According to Armendariz, although the new rules will potentially cover 167 major facilities, only a fraction of them will need new permits next year. And small pollution sources will not be subject to regulation.

EPA would not say which companies failed to meet the deadline because of the possibility of taking enforcement action against them.

The permits in question require refineries, chemical plants and other facilities to meet an overall emissions cap but allows them to choose how to do so. Federal rules, however, require plants to limit emissions of certain pollutants from each source within a facility.

The single overall cap, EPA argues, makes the Texas permits nearly unenforceable and allow plants to emit more than similar facilities in other states. But state officials say the system cuts red tape and pollution without violating federal law.

EPA has encouraged companies to follow the leads of Flint Hills Resources and INEOS Olefins & Polymers USA – both of which agreed to apply for new state-issued permits after negotiating some terms and conditions with the federal agency.

That’s important because the agreements ensure that the state permits will meet federal requirements, said Ilan Levin, an attorney with the Environmental Integrity Project, which has filed legal challenges to some of the flexible permits.

Valero Energy Corp., for example, has asked TCEQ to set limits for each emissions source at its plants, but to leave the rest of the permit alone. The state has issued new permits for five of the San Antonio company’s six Texas facilities, although the EPA has raised concerns about whether the revisions are federally compliant.

Valero spokesman Bill Day said the company is talking with the EPA to resolve their differences.

Other flex permit holders are likely to follow suit, as EPA’s takeover as the Clean Air Act permitting authority in Texas became effective yesterday.